Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,435 Questions

This topic covers essential concepts of credit, debt, and finance including bankruptcy, debt recovery, and financial acts. These questions are frequently asked in banking and IBPS exams. Test your knowledge of financial terminology and loan classifications.

Debt recovery actsBankruptcy filing proceduresFinancial classificationsMedium term financeCredit loss management

Credit, Debt, and Finance Questions

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of the following refers to sub prime mortgage?

  1. Lending done by banks at rates below PLR

  2. Funds raised by the banks at sub-Libor rates

  3. Group of banks which are not rated as prime banks as per Banker's Almanac

  4. Lending done by financing institutions including banks to customers not meeting with normally required credit appraisal standards
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Subprime mortgage lending refers to providing loans to borrowers who have poor credit histories or do not meet the standard creditworthiness requirements, often at higher interest rates.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of the following correctly describes what sub-prime lending is?
A. Lending to the people who cannot repay the loans
B. Lending to the people who are high-value customers of the banks.
C. Lending to those who are not a regular customer of a bank

  1. Only (A)

  2. Only (B)

  3. Only (C)

  4. All (A), (B) and (C)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Subprime lending means giving loans to people who may have difficulty maintaining the repayment schedule, sometimes reflecting setbacks, such as unemployment, medical emergencies, etc.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

The person who provides loan is known as a _______________.

  1. money lender

  2. borrower

  3. payer

  4. drawee
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The person who provides loan is known as a money lender. In other words, the person who lends money to someone or any institution for the purpose of personal expenditure like consumption of goods and services or investment is known as a money lender. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

If the periodic payments are made at the end of each period; the annuity is called _________________.

  1. annuity due

  2. an immediate annuity

  3. ordinary annuity

  4. (B) or (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

An annuity where payments are made at the end of each period is called an ordinary annuity or an immediate annuity.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Interest is____.

  1. money loaded

  2. money borrowed

  3. extra money paid on borrowed money

  4. borrowed run and above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest refers to payment against the loan which we borrow from other people. It is the regular charge which a borrower pay to the lender for holding a sum of money of the lender. So, interest is the excess money which is paid by the borrower for holding a specified sum of money. Therefore, interest is the extra money paid on borrowed money. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Quantitative measures aim at influencing total volume of credit.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True.

Quantitative measures of monetary policy includes those instruments which focus on the overall supply of the money. It influences the total volume of credit in the economy. It includes: 

A. Two Policy Rates: 

Bank rate is the rate charged on the loans offered by the Central bank to the commercial banks without any collateral. It is increased at the time of inflation to reduce the money supply in the economy and vice versa. 

Repo rate is the rate charged on the secured loans offered by the Central bank to the commercial banks that includes collateral. It is increased at the time of inflation to reduce the  money supply in the economy and vice versa. 

B. Two Policy Ratio:

Statutory Liquidity Ratio (SLR) refers to liquid assets that the commercial banks must hold on daily basis as a percentage of their total deposits. SLR is determined by the central bank and is a legal requirement to be fulfilled by the commercial banks.  It is increased at the time of inflation to reduce the money supply in the economy and vice versa. 

Cash Reserves Ratio (CRR) refers to the proportion  of total deposits of the commercial banks which they must  keep as cash reserves with the central bank. The ratio is fixed by the central bank and is varied from time to time to control the supply of money in the economy depending upon the prevailing situation of inflation or deflation.

C. Open Market Operations: 

Open market operation (OMO) is a monetary policy by the central bank in which the bank deals in the sale and purchase of securities in the open market to control the supply of money in the economy. By selling the securities, the central bank soaks liquidity from the economy and by buying the securities, the central bank releases liquidity. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Raising of margin requirement _______ the borrowing capacity.

  1. reduces

  2. increases

  3. stabilizes

  4. none of above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Margin requirement refers to the difference between the current value of the security offered for loan (called collateral) and the value of loan granted. By raising the margin requirement, the borrowing capacity of the borrower reduces as with the same amount of loan borrowed, the value of the loan decreases due to high margin requirement. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Credit creation is

  1. Process where money is given by banks through loan

  2. Process where the money is taken by lenders

  3. Process by which the money is taken by depositors

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Credit creation is the process by which banks expand the money supply through lending, as deposits are used to create new loans.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Limitations for the demand of credit are

  1. Demand should exist in the market

  2. Amount of loan granted should increase the paying capacity of borrower

  3. Bad debts should be avoided

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Effective credit management requires market demand, the borrower's ability to repay, and the mitigation of bad debts to ensure the sustainability of the lending process.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of these is a Quantitative Method of Credit Control?

  1. Bank Rate

  2. Moral Suasion

  3. Margin Requirements

  4. All of the above.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Quantitative methods of credit control regulate the total volume of credit in the economy. The Bank Rate is a classic quantitative tool, whereas Moral Suasion is a qualitative or selective method.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

An asset owned by borrowers and pledged as a guarantee to obtain loan is known as _____ .

  1. rate of interest

  2. term of credit

  3. collateral

  4. document
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An asset owned by borrowers and pledged as a guarantee to obtain loan is known as collateral.
Collateral is a form of security taken from the borrowers of loan by the banks or co-operative societies to lend loans.
Collateral is a part of terms of credit of the formal sources of credit.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Self Help Groups are issued loans at _____ .

  1. no interest

  2. reasonable rate of interest

  3. high rate of interest

  4. exorbitant rate of interest.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Self Help Groups issue loans at reasonable rate of interest.
In a SHG, important decisions in regard to loan and savings are taken by group members.
SHG is a mutual help group who provide support among themselves.
They come together to solve their economic issues and earn income.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Easy term of credit includes _____ .

  1. high rate of interest

  2. lesser number of collateral

  3. higher number of documents

  4. steep condition of repayment
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Easy term of credit includes steep condition of repayment.
Tougher terms of credit include higher rates of interest, collateral security and more number of documents related to loan.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Teaser rates are related to which of the following types of loans?

  1. Home Loans

  2. Personal Loans

  3. Auto Loans

  4. Reverse Mortgage Loans
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Teaser Rate: A teaser rate is a low adjustable introductory interest rate which is charged to customers during the initial stages of a loan. The rate, which can be as low as zero per cent, but is not permanent. The rate advertised for a loan, credit card or deposit account in order to attract potential customers to obtain the service. Typically the teaser rate is 0%. The teaser rate is only temporary. After its expiration, the rate increases to a normal or much higher than normal rate, and in some cases, the borrower cannot keep up with making payments.